Tony Sagami: The sky is falling! Rather, Chinese stocks have taken a tumble, thanks to “terrible” GDP numbers that would make U.S. leaders jump for joy in comparison.
The Chinese economy expanded by 7.7% in the first quarter of this year. I don’t know about you, but I can imagine President Obama doing somersaults if the U.S. economy were growing at a 7.7% rate!
In China, however, 7.7% is considered a disappointment by most of the investment community. Even worse, that figure is down from 7.9% in the fourth quarter of 2012, and below the 8% consensus Wall Street forecast.
We’ll get the newest U.S. GDP figures Friday before the opening bell. But I can tell you this: If we would see a number above 7% — or, heck, even a figure that’s just half of that — the markets would go crazy.
Not in China, however, as its stocks sold off on that number. On top of that, many China naysayers once again made loud predictions for an ugly bear market.
I am not one of those naysayers. Here’s why …
Many Reasons to be Bullish on China, Asia
First, despite the 7.7% number for the first quarter, the Wall Street crowd still expects the Chinese economy to grow by a very healthy 8% for full-year 2013.
That number was echoed by the International Monetary Fund, which announced its 8% target last week.
China GDP growth of 7.9% in 2012 is down
from its high of 11.2% growth reached in 2007.
Anoop Singh, the director of the IMF’s Asia and Pacific Department, believes that the Chinese economy is still very healthy.
“While GDP growth for the first quarter has come in slightly lower-than-expected, many of the more high-frequency and more disaggregated data have actually been quite strong.
“Exports have held up well, fixed-asset investment and retail sales have been strong and credit growth has accelerated,” said Singh in an interview.
What Singh means by “disaggregate data” are the narrower, specific statistics that paint smaller but more-predictive pictures like these:
- Chinese exports are still strong — exports grew by 10% year-over-year in March.
- China’s factories are still busy — industrial output grew by 8.9% year-over-year in March.
- Credit is expanding — bank loans reached 6.1 trillion yuan (about US$1 trillion) in the first quarter, a record high.
- Out of that 7.7% growth, an impressive 4.3% (or 56% of the total) came from growth in domestic consumption.
- Restaurant spending, a key indicator of consumer confidence, increased by 8.7% over the last 12 months.
- Consumers are still spending at a double-digit rate — retail sales climbed by 12.6% year-over-year in March.
Sure, China isn’t growing at the breakneck, double-digit pace that it was before. But it is still healthy, vibrant and the envy of just about every country in the world.
In particular, I want to draw your attention to those last three data points — domestic consumption, restaurant spending and retail sales — that all deal with the consumer side of the Chinese economy.
Those are all solid numbers and that tells me that our consumer side — not the export side — is the sweet spot of the Chinese economy and where the big profits are.
That news won’t surprise long-timer readers of this column. I wrote about China’s consumer spending boom on March 12.
“The Chinese economy is undergoing an intentional, MONUMENTAL transformation from an export-dependent manufacturer of low-margin trinkets to a consumption-driven economy powered by its own internal growth and wage growth.
“China’s leaders don’t like being dependent on the West for its exports, so it is intentionally focusing on growing its internal domestic demand.”
Although China (and other Asian nations) is doing well, I want to point out a key distinction to you that many of Wall Street’s highest-paid analysts seem to overlook … one that you can easily exploit for profits.
How to Gain an Edge Over
Wall Street’s Asia Investors
One of the biggest mistakes Western analysts make about China is that they assume it is a proxy for all of Asia.
China is certainly the most-visible as well as the largest economy in Asia, but several of its Asian neighbors are doing quite well on their own.
That is especially true of the 10 Association of Southeast Asian Nations (ASEAN) countries.
The International Monetary Fund expects the global economy to grow by 3.3% this year.
But it forecasts that the ASEAN nations —Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam — will grow by a combined 5.9%.
That optimism is reflected in the performance of ETFs like the Global X ASEAN 40 ETF (NYSEARCA:ASEA) vs. the iShares FTSE China 25 ETF (NYSEARCA:FXI).
ASEA has gained 4.34% year-to-date, easily outperforming the 13.86% loss in FXI by more than 18%!
Bottom line: if you listen to the mainstream media and investment experts sitting at a desk in Manhattan … you’ll miss out on the very best opportunities in the world.
Uncommon Wisdom (UWD) is published by Weiss Research, Inc. and written by Sean Brodrick, Larry Edelson, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended inUWD, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in UWD are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Roberto McGrath, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Marty Sleva, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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